Lessons Learned: We need a load of perspective

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By GENE KELLY/Personal Finance Columnist

The lady, who’s been an investor for 64 years, called to talk about two financial stocks she’s owned for years and years. Both are massive bank holding companies that acquired Lincoln-based banks during the past 20 years.

“I stay with the old timers, not the new, upstart stocks. These days, I’m investing for income — for the dividends — not so much for growth,” she explained. “Munis? Yes, I own muni bonds, primarily ones issued in Nebraska — those I know and trust.“

Also, she may acquire additional shares of another big powerhouse insurance/financial stock. “In the past, I’ve taken some profits on this one. Now, while the price is off more than 25 percent, it’s probably time to scoop up a bargain,” she confided.

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We agreed that the markets will bounce back, as they always do. “It will take a bit longer this time around, don’t you think?” she asks. I have no fresh insights. “We’ll talk again,” the lady promised.

In retrospect, we all need to share questions and ideas to gain perspective.

Stars indicate health of online banks: A Lincoln reader says he tries to keep enough money in “liquid accounts” to cover three to six months of family expenses, but “we hate having it sit around not earning much interest.” So he moves money back and forth between an online checking account that pays 1.5 percent on deposits, and online savings accounts — one of which earns him a 4 percent rate. “All our wages are direct deposited into the checking account, and our utilities, mortgage and credit card payments (in full) are automatically deducted from that account,” he says.

The reader believes the 4 percent rate may have something to do with the current credit crunch: “If banks really are having trouble finding money to loan out, they will give savers a better rate,” he said.    Higher rates can also indicate the bank is on shaky footings.

You can check the health of a bank or credit union by using the “safe and sound” star ratings on bankrate.com. For example, a financial institution given two stars (out of a possible five stars) is considered “below peer group,” based on 22 tests that measure its capital adequacy, asset quality, earnings and liquidity. A three-star rating means a bank is “performing.” Four stars would earn it a “sound” designation, and five stars indicate a “superior” ranking.

Reprieve from Required Minimum Distribution? Describing herself as a “pre-boomer” turning 70 this year, one reader wonders if Congress might reduce the required minimum distribution (RMD) amount this year, in light of the stock market collapse.  RMDs apply to tax-advantaged retirement accounts.

“What’s the problem?” she asks. “After making substantial gains over the past 10 years, to the point where the income from my IRA accounts would add to life’s pleasures, the value of my holdings has plummeted. I don’t have another 10 years to rebuild the wealth, especially if I’m forced to withdraw when it is at its lowest value.“

On the campaign trail, both presidential candidates supported temporary changes in federal rules that require these withdrawals, plus reducing the taxes and any penalties. These distributions are taxed at ordinary-income rates.

One idea: The U.S. Treasury could use a later date in 2008 to calculate the withdrawal amount. Normally, the math is based on the IRA account balance on Dec. 31, 2007.

Yet, making a withdrawal doesn’t mean you have to liquidate beaten-up stocks or mutual funds. The RMD amount can be shifted from a tax-deferred account directly into new, comparable taxable accounts.

Tax break for IRA gifts extended:  Older taxpayers who want to make tax-free distributions to charities directly from their individual retirement accounts will be able to do so again this year and during 2009.

The bailout package signed by President Bush on Oct. 1 extended for two years a tax break that allows those 70 ½ or older to transfer up to $100,000 a year from an IRA to a charity, without owing income taxes on the gift. This popular strategy produced substantial donations to charities during the 2006-07 period.

The main idea is that someone who faces a required minimum distribution (RMD) from an IRA account can both avoid a tax hit and assist a favorite charity.

A cautionary note: The amount transferred isn’t included in a person’s adjusted gross income. (Taxpayers lose some itemized deductions and personal-exemption amounts when their AGI exceeds certain levels.)

If you have a Lessons Learned topic to suggest, you can call Gene Kelly at 421-2861, write to him at 2611 Bretigne Circle, Lincoln 68512, or e-mail him at  EKELLY1@neb.rr.com